The very first step to being a Forex trader is to get intimated with all you need to know about foreign exchange, in this post we will understand very basic languages in Forex as well as expose to you the ultimate cheat sheet for beginners by showing you key terms and strategies in Forex trading.

How Does Forex Trading Work?

Forex is the use of trading currency pairs. The most common is Euros and United States Dollars (EUR/USD).

Common Pairs in Forex Trading include:

Great British Pounds and United States Dollar (GBP/USD)

Canadian Dollar and United States Dollar (CAD/USD)

Japanese Yen and United States Dollar (YEN/USD)

It will interest you to know that you can trade almost any currency you want, when trading pairs, you either buy a currency you think is going to rise in value or you sell a currency you think is going to fall in value.

What Are the Benefits of Forex Trading?

The overall goal of Forex trading is to make money. Other many benefits to trading currency over the traditional stock market include:

• Liquidity: The Forex market is one of the world’s largest markets, which makes it very liquid. This means it is easy to get your money into the market and out of the market.
• Leverage: This allows you to make larger trades than you have money for. This therefore means that with $100 in your account, you can trade up to $1000 at a time theoretically, which will enable you leverage sizeable gains.
• 24 Hour Trading Day: The Foreign exchange market trades 24 hours every day, this is very good for those that work during the day because they can still enter the market at night, or very early in the morning before heading out for daily schedule.
• Low Costs: During Forex trading, your only cost is the spread. The spread is the difference between the bid and asks prices. There are rarely ever added commissions to the trade like when trading stocks.

What Are the Drawbacks of Forex Trading?

Don’t be surprised, there are drawbacks to Forex trading, most of which are highlighted in this post:

• Leverage: While it is nice to use leverage to your advantage to increase the sizeable profits, if your trade gets bad, you could be in serious trouble. Think about having $100 but having to pay $2000. What a loss.
• Learning Curve: With Forex, you need to understand the terminology and how the system works if you must succeed. The learning curve of Forex trading is one that many Forex Brokers offer a free demo account for you to practice with so you can hit the ground and running.

• Fast Paced: With traditional investing, you can buy and hold for the long term, then come out fine in the long run. Not so with Forex, in foreign exchange, you have to stay on top of the news across the world because things happen as fast as the speed of light, any delay can cost you your investment.
• Regulation: The FX market is not as regulated as the stock market, reasons are that there some fraudsters out there. Therefore when you invest in stocks or ETFs, deal with a firm you can trust and rely on. However, this isn’t the case with firms that trade Forex.

Ensure you make your research on any firms you plan to trade with and understand how they are regulated. Check out our reviews on Firms to trade in the Forex market with.

What is a “Forex Cheat Sheet”?

A Forex cheat sheet, also known as a Forex cheat chart, serves as an invaluable resource, particularly for novice Forex traders.

Essentially, it condenses essential information into a compact format, aiding in informed decision-making.

While the content and layout of these cheat sheets can vary, they typically encompass key currency pairs, including majors, minors, and exotics, along with their respective ISO codes.

Furthermore, they often highlight trading signals and patterns, such as head and shoulders and double tops/bottoms, as well as candlestick formations.

To aid in risk management, these tools frequently include pip value calculations for different currency pairs.

Lastly, they provide overviews of crucial economic indicators like GDP, unemployment rates, inflation figures, and central bank policy decisions.

Understanding the Terminologies Used

One misconception can cost you thousands of dollars. If definitions and financial terminology are not your strong suit, keeping a forex cheat sheet close by is advised.

List of common terminology with brief explanations:

• PIP: In short, PIP denotes the smallest incremental move an exchange rate can make.
• Leverage: Used to increase buying power, leverage allows you to trade one dollar as if it were fifty.
• Margin: This is the amount of credit a broker will extend to you as a trader for use as leverage.
• Margin Call: If the markets begin to drop, the broker may make a margin call. This means you will have to return any money you have traded on margin with them.
• Spread: A simple term to understand, a spread is the difference between the bid and offer (ask) prices.
• Bid: The price at which a buyer is prepared to purchase.
• Offer (Ask): The price at which a seller is prepared to sell.
• Long: Going long means that a trader buys a currency with the expectations of it profiting well over a period of time usually a week or longer.
• Short: This involves a rapid purchase of a commodity followed by a small price increase to generate immediate profit. The strategy hinges on the expectation of a swift commodity price decline, which subsequently allows the share price to recover.

You should also understand that these terms will be in handy and in order to avoid financial loss, you want to understand more terms related to Forex, click on to join our master classes.